Section 10A Is Not Applicable To Proceedings Against Personal Guarantors Under Insolvency & Bankruptcy Code, 2016: NCLAT New Delhi

Brief Facts

The Financial Creditor Siemens Financial Services Pvt. Ltd advanced a loan of INR 2.30 Crores to CMI Ltd and the Appellant stood as the Personal Guarantor to the same. CMI defaulted in paying the interest and was declared as NPA on 11.09.2020

Siemens filed a petition against the personal guarantor under Section 95 of the Code for an amount of Rs. 2.44 Crores. The NCLT vide order dated 03.02.2022 appointed the Resolution Professional and Interim Moratorium was also imposed.

Contentions of Personal Guarantor

It was contended on behalf of the Personal Guarantor that the since there is a bar for initiation of Corporate Insolvency Resolution Professional against the Corporate Debtor by the virtue of Section 10A of Code, no CIRP can be initiated against the Personal Guarantor.

It was further argued on behalf of the Personal Guarantor that initiation of CIRP against the principal borrower is a condition precedent for proceedings against Personal Guarantor and when default of Principal borrower is covered by Section 10A, the same shall be applicable to Personal Guarantor as well.

Contentions of Financial Creditor

It was contended on behalf of Siemens that Section 10A is only applicable to proceedings Corporate Debtor and thus cannot be applicable to proceedings against Personal Guarantor.

Analysis/Decision of NCLAT

After hearing the parties, the NCLAT framed the question that;

"whether the benefit of Section 10A can also be claimed by a Personal Guarantor and an application under Section 95 shall be barred for a default which has arisen on or after 25.03.2020 till 24.03.2021?"

The Bench noted that the object of Section 10A is well known and in order to provide protection to Corporate Debtor from COVID-19 induced effect, Section 10A was inserted under IBC.

It was further observed that when Section 10A was inserted in Chapter II, no corresponding amendment was made in Part III of the Code.

"Had the legislature intended to prohibit filing of application under Section 95(1) by a creditor against the Personal Guarantor for any default committed on or after 25.03.2020, a provision akin to Section 10A could have very well be inserted in Chapter III Part III of the Code."

NCLAT concluded that the Section 10A is only capable of one interpretation which is the suspension of CIRP only for Corporate Debtor and not for the Personal Guarantor and accordingly, NCLAT dismissed the appeal field by the Personal Guarantor.

Case Details: Amit Jain v Siemens Financial Services Pvt Ltd.

Counsel for Appellant: Simran Jyot Singh and Mr. Sahil Yadav

Counsel for Respondent: Mr. Ashwini Kumar Singh.

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